Proceeding against Body or Officer - Order to Show Cause - Challenge to Order Sealing Business under Administrative Code of City of NY § 7-552 for Unlicensed Cannabis Sale - Imminent Threat to Public Health, Safety and Welfare Based on Quantity of Cannabis and Proximity to Schools

Injunctions - When Injunctive Relief Appropriate - Request for Preliminary Injunction was Moot Where Sheriff Properly Issued Sealing Order for Business Engaged in Unlicensed Cannabis Sale - Interest of Justice Warranted Reopening of Business Despite Violation as Petitioner Had Vested Interest in Operating Legal Business

Lazzaro Law Firm, P.C., Brooklyn (Lance Lazzaro of counsel), for petitioner.

Muriel Goode-Trufant, Corporation Counsel, New York City (Theresa Dernbach of counsel), for City of New York, respondent.

In this CPLR article 78 proceeding, and [*2]considering oral argument on December 11, 2024, and January 3, 2025, by order to show cause (OSC), petitioner moves for a temporary restraining order (TRO) and a preliminary injunction. Petitioner seeks to prevent respondents from enforcing an order sealing petitioner's business, 22 Convenience Shop, located at 22 4th Avenue in Brooklyn (sealing order), allowing the business to reopen pending the court's decision on the article 78 petition. The OSC was signed on October 4, 2024, without granting the requested TRO.^[FN1]

Petitioner commenced this article 78 proceeding challenging the sealing order issued by the Sheriff which resulted in the padlocking of the business due to alleged illegal cannabis sales. The sealing order was issued following a June 13, 2024 decision by the Office of Administrative Trials and Hearings (OATH).^[FN2] Despite the dismissal of a related civil summons for improper service, charging petitioner with illegal cannabis sales in violation of Administrative Code of the City of New York § 7-551, OATH recommended maintaining the sealing order.^[FN3] The summons stemmed from a Sheriff's inspection of the business on June 6, 2024,^[FN4] which resulted in the issuance of a sealing order under Administrative Code § 7-552 (b) (2), citing imminent threats to public health, safety, and welfare due to unlicensed cannabis sales, the proximity of the business to a school, house of worship, or public youth facility, and the sale of untested or improperly labeled cannabis products.^[FN5]

Following the June 13, 2024 OATH hearing, the Hearing Officer dismissed the summons for defective service and determined the Sheriff established petitioner violated the Cannabis Law.^[FN6] This finding was based on the summons's affirmed statement, as well as photographic and documentary evidence, demonstrating petitioner's involvement in unlicensed cannabis sales. The Hearing Officer identified an imminent threat to{**86 Misc 3d at 790} public health, safety, and welfare due to three statutory factors outlined in the sealing order, leading to a recommendation that the sealing order remain in place. On June 20, 2024, the Sheriff issued a final decision affirming the business closure.^[FN7]

Legal Framework

Administrative Code of the City of New York §§ 7-551 and 7-552

New York Cannabis Law §§ 138-b, 138-b (2) and 138-b (7)

Individuals engaging in the unlicensed sale of cannabis in violation of NY Cannabis Law § 125 are subject to a civil penalty under Administrative Code § 7-551. OATH is responsible for adjudicating civil summonses under chapter 6 of title 48 of the Rules of the City of New York (see 48 RCNY 6-08–6-18). OATH decisions on civil summonses constitute judgments under Administrative Code § 7-551 (see Administrative Code § 7-551 [c]). Here, petitioner challenges an OATH judgment following the issuance of a civil summons,^[FN8] arguing that since the summons was dismissed for defective service, the sealing order lacks a valid foundation. However, the OATH decision was based on multiple violations of New York State Cannabis Law § 138 including section 138-b, 138-b (2) and 138-b (7), making petitioner subject to penalties under Cannabis Law § 132.^[FN9]

Under Cannabis Law § 138-b, the Sheriff's office holds authority to inspect businesses selling cannabis products and to seal businesses engaged in unlicensed activity (Administrative Code § 7-552 [b] [2]). Immediate sealing orders may be issued under section 138-b (3) when an imminent threat to public health, safety, and welfare is identified. The sealing order in this case was supported by substantial evidence, including photographic documentation and NYPD property clerk invoices confirming significant quantities of unlicensed cannabis found at the location.

The Administrative Code stipulates that sealing orders must be referenced in the civil summons issued under section 7-551. When both are issued, the Sheriff assumes powers akin to the Office of Cannabis Management.{**86 Misc 3d at 791}

The OATH hearing officer must issue a determination within four days of the hearing and recommend whether the sealing order should remain in effect. The Sheriff retains discretion to adopt or reject OATH's recommendation. Here, the OATH hearing was timely heard on June 13, 2024.^[FN10]

Factors contributing to an imminent threat include proximity to schools (Cannabis Law § 138-b [4] [e]), while de minimis unlicensed activity is evaluated based on signage, advertisements, product volume, and variety (Cannabis Law § 138-b [7]). Where the City seeks to issue an immediate sealing order, the unlicensed activity must be more than de minimis (Cannabis Law § 138-b [6]).

Cannabis Law § 138-b (2) requires the sealing order be served on the business owner or other person of suitable age or discretion in actual or apparent control of the premises at the time of the inspection, posted on the sealed building or premises and mailed. The order remains in effect pending a hearing and final determination of the board, or until it is vacated by the office. Sealing orders must also explicitly state the procedure to request a hearing.

Petitioner created an imminent threat to public health, safety, and welfare by engaging in [*3]unlawful activity given the establishment's proximity to three schools.^[FN11] Additionally, photographic evidence, an NYPD property clerk invoice, and a Department of Finance seizure report confirmed the presence of significant cannabis quantities at the location.^[FN12] Respondent also provided documentary evidence confirming the sealing order was properly displayed at the location.^[FN13] While the Hearing Officer found service of the sealing order was defective due to missing recipient address information,^[FN14] this procedural issue was outweighed by the volume of cannabis seized and the imminent community threat. Consequently, the Hearing Officer recommended maintaining the sealing order.^[FN15]

Article 78

Judicial review in an article 78 proceeding is limited to determining whether an agency's decision was arbitrary, capricious, made in violation of lawful procedure, or affected by an{**86 Misc 3d at 792} error of law.^[FN16] Provided agency determinations are rationally based, courts must grant judicial deference and accord them substantial weight when derived from detailed legislative methods, are within an area of the agency's expertise and are amply supported by the record.^[FN17] The court may not substitute its judgment for that of the decision-making agency and must only ascertain whether the agency's determination was rationally based.^[FN18]

Petitioner contends the sealing order lacked a valid foundation because the underlying summons was dismissed for defective service. However, the court finds said sealing order was upheld due to the volume and variety of cannabis products found in petitioner's business located near several schools. The Sheriff and OATH Hearing Officer's actions were neither arbitrary nor capricious, and the sealing order was properly served.

Preliminary Injunction

Petitioner's OSC seeks a preliminary injunction to lift the sealing order and allow [*4]business operations pending the article 78 petition outcome. Since the court upholds the OATH Hearing Officer's decision, this request is moot. Even if considered, petitioner failed to meet the legal standard for a preliminary injunction.^[FN19] A preliminary injunction is an extraordinary remedy requiring proof of:

1. Likelihood of success on the merits,

2. Irreparable harm absent the injunction, and

3. A balance of equities favoring the movant.

A preliminary injunction is a drastic remedy, which should not be granted unless the movant demonstrates "a clear right" to such relief (City of New York v 330 Cont. LLC, 60 AD3d 226, 234 [1st Dept 2009]; Peterson v Corbin, 275 AD2d 35 [2d Dept{**86 Misc 3d at 793} 2000], lv dismissed 95 NY2d 919 [2000]). "Economic loss, which is compensable by money damages, does not constitute irreparable harm" (EdCia Corp. v McCormack, 44 AD3d 991, 994 [2d Dept 2007]).

Petitioner has not established a likelihood of success on the merits, as agency determinations are upheld if rationally based. In the context of an article 78 proceeding, "[a]n action is arbitrary and capricious when it is taken without sound basis in reason or regard to the facts."^[FN20] "If the court finds that the determination is supported by a rational basis, it must sustain the determination even if the court concludes that it would have reached a different result than the one reached by the agency."^[FN21]

Even assuming petitioner established a likelihood of success on the merits, it failed to establish that irreparable harm would result in the absence of a preliminary injunction. Petitioner has not demonstrated irreparable harm, as the alleged loss of customer goodwill is unsupported by competent evidence. While a loss of customer goodwill can constitute irreparable harm,^[FN22] as can a "loss of current or future market share,"^[FN23] the conclusory assertion that petitioner will be [*5]unable to regain its customer base is unsupported by affidavit(s) from petitioner or other competent proof and insufficient to establish loss of goodwill, loss of future market share or other harm resulting from the sealing order which could not be compensable by monetary damages.^[FN24] The conclusory assertion that customer relationships will be irreparably harmed lacks evidentiary support.{**86 Misc 3d at 794}

As to balance of equities favoring the movant, the equities do favor petitioner.

Here, there is no showing of irrationality in the Hearing Officer's recommendation that the sealing order remain in effect despite the dismissal of the summons on defective service grounds. Administrative Code § 7-552 (b) authorizes the Sheriff to issue a sealing order. It is the unlawful conduct which serves as the predicate for the issuance of a sealing order, not the issuance of a summons. Under the referenced laws, a separate statutory provision authorizes assessment of punitive fines and the validity of a sealing order is not dependent upon the procedural validity of an issued summons.

While petitioner contends that the Sheriff's certificate of service of the sealing order does not meet statutory requirements of CPLR 2106, it was not irrational for the Hearing Officer to credit the certificate of service since CPLR 306 (d) provides that "[p]roof of service shall be in the form of a certificate if the service is made by a sheriff." CPLR 2106 does not apply to administrative proceedings.^[FN25]

Petitioner relies on cases from Queens County Supreme Court. Courts of coordinate jurisdiction may be persuaded by decisions issued by their coordinate justices, but they are not bound by them. In New York State, it is well-established that decisions from courts of coordinate jurisdiction are not binding on other courts of the same level (Mountain View Coach Lines v Storms, 102 AD2d 663 [2d Dept 1984]). This means that while such decisions may be considered persuasive, they do not have binding authority over other trial courts. Furthermore, the Appellate Division has emphasized that trial courts are not obligated to follow decisions from courts of coordinate jurisdiction. (Id.) Therefore, while decisions from other trial courts can provide guidance, they do not constitute binding precedent.

Courts recognize that business owners possess a vested interest in operating their establishments, and equitable considerations can favor the reopening of businesses closed due to violations. Appellate courts acknowledged the importance of balancing equities when determining the appropriateness of{**86 Misc 3d at 795} injunctive relief affecting business operations.^[FN26] The courts emphasized that even when violations are established, the equities may favor the petitioner, [*6]particularly when the closure of the business imposes significant hardships.^[FN27] This principle suggests that, under certain circumstances, courts may find that the equities favor allowing a petitioner to resume lawful business operations despite prior violations.^[FN28] The court finds the equities in this case favor petitioner, who owned and operated a store, and even though violations were clearly established requiring closure, petitioner has a vested interest in operating a legal business within the neighborhood. The ability to conduct this business has been hampered by the store's continued closure since June 20, 2024.^[FN29]

The imminent threat determination was supported by substantial evidence showing unlicensed processing of cannabis, including cannabis pre-rolls and cannabis flower used in cannabis trade.^[FN30] The extensive photographic evidence and invoices of recovered cannabis and cannabis products^[FN31] clearly demonstrate the sale of illegal cannabis products without required testing or labelling as required by the relevant law.^[FN32] The unlicensed cannabis activity was located within 1,000 feet of multiple schools.^[FN33] These imminent threat determinations supported the issuance and recommendation to continue the sealing order. Therefore, the decisions by the OATH Hearing Officer and the Sheriff are affirmed. Consequently, petitioner's motion for a preliminary injunction is moot and denied.

Since continued closure impedes the legitimate operation of a regulated business, the reopening of the premises is warranted in the interest of justice and to balance the equities.{**86 Misc 3d at 796} This location was legally closed on June 6, 2024, and remained closed since then. With the reopening, petitioner shall be subject to the laws of the state of New York, including the state cannabis laws.